Commentary

2 non-negotiable demands of the 99%

Commentary: Break up the banks; get money out of politics

WASHINGTON (MarketWatch) – After a couple of years dominated by birthers, death panels and debt ceilings, the nation owes a huge debt of gratitude to the We Are the 99% movement for forcing our attention back on the most fundamental questions of our day: Who does our economy work for? Who does our democracy work for? Why is our country broken and how can we fix it?

Its critics have savaged the 99% movement (also known as Occupy Wall Street) for lacking a clear goal, but that’s not true. The whole point of “occupying” New York or Washington or London is to physically re-assert our proper place in the public sphere. To the bankers, the billionaires and the bureaucrats, the 99% are loudly and persistently declaring that this is our economy, too. We are not leaving.

True, the protesters have many different motivations for occupying public spaces in hundreds of cities around the world. Some may have radical ideas; some may just want to be part of something big and exciting. But the overarching complaint of the 99% movement is that our economy works only for the 1% who already have the most.

We don’t begrudge the winners of a fair fight. But everyone knows the game is fixed.

How can we level the playing field so that everyone has an equal opportunity? How can we make our political economy fair? How can we minimize the risk that the 1% will drive the economy back into the ditch and stick us with the bill?

I’d suggest that there are two big things we must absolutely do to create an economy that works for all of us: Eliminate too-big-to-fail banking and get money out of politics.

Cutting the banking sector down to its proper size is the most immediate problem we face. Over the past 30 years, we’ve allowed finance to run the world economy. It’s gotten bigger, and the bankers have gotten richer, but the real economy has stagnated. The purpose of finance is to allocate capital efficiently, but the big banks don’t allocate capital, they siphon it off.

New recession fears plague Europe

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While European leaders are scrambling to strike a deal to rescue ailing economies, a new business survey paints a pessimistic picture of economic strength. Photo: GEORGES GOBET/AFP/Getty Images

Instead of rebuilding and retooling our manufacturing base, we’ve built millions of homes that no one wants. Instead of refurbishing our public infrastructure, we’ve starved the public treasury. Instead of solving the real problems of energy, education and health, we’ve harnessed our most creative and ambitious minds to the task of inventing new financial weapons of mass destruction, the kind of instruments that diverted trillions to the banks and drove the global economy over the cliff.

In the apt words of Thomas Hoenig: “Too big has failed.”

Now the global economy faces yet another catastrophe, brought to you by The Great Banks of Europe. Greece’s sovereign debt crisis would have been solved long ago but for one small detail: The debt is held by the huge German, French, Spanish, Italian, British, Japanese Chinese and American banks. Since the banks are too big to fail, they cannot not take the losses that they deserve. They must be bailed out. The only delay is finding a patsy to pay the cost of the bailout.

In a properly functioning economy, when you take on more debt than you can repay, you go bankrupt and the lender eats the loss as the price of being stupid or unlucky. Both lender and borrower suffer, but life goes on for everyone else. But this cannot be done in Europe, because the banks are so big and interconnected that they would bring down the economy with them, just as Lehman Bros. did, if they were forced to take their losses.

In case you hadn’t noticed, China’s property bubble may be about to burst as well. And China’s big banks are even bigger than ours are.

It’s obvious to almost everyone what must be done: The banks must be broken up into pieces so small that they can no longer threaten the economy. Bad debts must be written off, with both borrowers and lenders taking their lumps.

If we had many small banks, the failure of a few would be tragic for those involved, but not catastrophic for the rest of us. Since the Panic of 2008, about 400 failed U.S. banks have been taken over by the FDIC and sold off, but the impact on the economy from those failures has been minimal.

By contrast, the too-big-to-fail banks have received hundreds of billions of dollars in direct and indirect subsidies from the Treasury and the Federal Reserve. Only a small portion has been repaid. All of the TBTF banks enjoy an implicit government guarantee that lowers their costs of funding, and the Fed’s loans and low interest-rate policies guarantee them huge trading profits.

How can a small bank compete against that?

If everyone knows what must be done, why hasn’t it? Because the banks, along with other large corporations and wealthy individuals, control the government. The 1% has the power only because the 99% have allowed it.

The 1% has tried to portray the 99% movement as anti-capitalist, but it’s not. Our system is not capitalism. We’ve got a few huge companies that have the power to prevent real competition either in the markets or in our politics. Adam Smith, the patron saint of markets, warned of the tendency of the wealthy to capture the government: “Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all.”

The 99% could take back the government from the 1%. We’d not only free our economy from the shackles of inefficient monopolies, but we could turn our government into an institution that actually solves our problems.

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